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Ethereum (ETH) Blockchain is preparing for a significant upcoming development with the eagerly anticipated Dencun update, scheduled for implementation on the network on March 13. The update corresponds to the first step in realizing a rollup-centered roadmap.
Dencun Update to Benefit Layer 2 Networks the Most
Fidelity Digital Assets released a research report on March 6, before the Dencun update, stating that it will position Ethereum as a strong database for Layer 2 networks, offering enhanced efficiency and cost-effectiveness for data storage. Fidelity Digital Assets analyst Max Wadington emphasized the transformative potential of Ethereum evolving into a more efficient database, underlining the possibility of near-zero transaction fees for users of Layer 2 networks.
According to the report, the improved scalability provided by the update will position Ethereum as a more suitable distributed database for other Blockchain networks and pave the way for hosting millions of users on Layer 2 networks. Consequently, this enhancement is expected to attract a broader user base to the Ethereum Blockchain and expand its total addressable market.
One of the most important aspects of the Dencun update is its potential to reduce the costs of data storage on the Ethereum network for Layer 2 networks. This reduction in costs is expected to translate into lower transaction fees for users and promote greater accessibility and affordability on the Ethereum network.
Rollups, Ethereum protocols designed to process transactions separately from the main network, play a significant role in increasing transaction speed and reducing fees. Layer 2 networks are independent networks built on top of Layer 1 networks or the base Ethereum network, aiming to alleviate scaling limitations and optimize data management.
Despite the expected benefits, the reduction in transaction fees is likely to primarily benefit users of Layer 2 networks rather than those transacting on the main Ethereum network. Wadington added that users who want to take advantage of the transaction fee benefits of Layer 2 networks might need to compromise a degree of decentralization and security due to the inherent trade-offs involved in these networks.
Focus on Layer 2 Altcoins
According to CoinMarketCap data, the list of the top 10 Layer 2 altcoins by market value is led by Polygon (MATIC), followed by Optimism (OP), Immutable (IMX), Mantle (MNT), Arbitrum (ARB), Starknet (STRK), Manta Network (MANTA), SKALE (SKALE), Metis (METIS), and Loopring (LRC).
As highlighted in the Fidelity Digital Assets report, market observers are evaluating the possibility of sharp increases in Layer 2 altcoins following the Dencun update.
